Swiss franc starts 2021 at 5-year high

The Swiss franc started the new year with gains and is again in green territory on Tuesday. Currently, USD/CHF is trading at 0.8792, down 0.22% on the day. On Monday, the pair dropped to a low of 0.8784, its lowest level since January 2015.

Switzerland inflation declines in December

Switzerland’s inflation numbers have been dismal, and there was no relief on Tuesday as December CPI came in at -0.1 per cent. This marked a back-to-back decline and CPI hasn’t registered a gain since March, prior to the Covid pandemic. The country is grappling with deflation, as the average annual inflation in 2020 was -0.7 per cent. This points to weak domestic activity as Covid has weighed heavily on the economy.

Although inflation is struggling, there are bright spots in the economy. Manufacturing PMI was unexpectedly strong in December at 58.0, up from 55.2 beforehand. This easily beat the consensus estimate of 54.4 points. The manufacturing sector has been in expansionary territory throughout the entire second half of 2020, and we can expect the solid readings to continue into 2021, as the global economy slowly finds its footing. Switzerland releases retail sales on Thursday, and analysts are projecting a strong gain of 3.5 per cent.

Swiss franc keeps climbing

When one hears the word ‘Switzerland’, the usual thought is stability and safety. Those sentiments are causing fits for policymakers at the Swiss National Bank, as the Swiss franc continues to appreciate against the hapless US dollar. Investors have shown a liking for minor currencies that carry risk such as the Australian dollar, but at the same time the reliable, safe-haven Swissie shows no signs of slowing down. The currency gained 2.5% in December despite efforts by the SNB to stem the rise, as the central bank is concerned that this trend will affect price stability. The bank has kept interest rates at -0.75%, among the lowest in the world. The SNB has been buying up billions of US dollars, to such an extent that the US Treasury recently labeled Switzerland a currency manipulator. With the incoming Biden administration expected to implement further easing, the SNB will have a tough time keeping a lid on market enthusiasm for the Swiss franc.

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USD/CHF Technical

• USD/CHF is testing support at the round number of 0.8800. Below, there is support at 0.8699
• There is resistance at 0.8998, followed by resistance at 0.9095
• The pair broke below the 10-day MA line last week and remains below this line

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